's no secret that the global economy has been complicated mainly by the increase in inflation in some countries, leading to significant loss in the value of savings and investments. What is inflation?
Simply increasing the prices of goods and services consumed by individuals occur continuously in time. This increase may be short periods of at least one year or longer as in most Latin American economies.
There are two types of inflation, the so-called core inflation that occurs when economies grow, as there is an increase in consumption and industrial activity which is pushing the rising production costs (mainly wages ) and Companies must adjust their sales prices. this inflation in moderate amounts is the "good cholesterol" to the economy because it indicates growth.
The advantage of this inflation is that it requires few adjustments on the part of States to control it.
The other type is called monetary inflation, and occurs when increases the amount of money, either by an external event (excessive increase in the prices of products exported ), or that money is created by the State to meet the needs of the economy.
Because the money is worth less because there is too much of it, the prices of goods increase, giving way to inflation. This type is considered the worst of all since a major split income families and the regulator must take a series of further measures to oppose their harmful effects.
How do I protect against inflation?
protection in an inflationary environment depends on several factors including:
The time horizon of investment: If you need short-term investing, which is the least advisable in periods of inflation, then the savings instruments must be sufficiently dynamic and sensitive to changes in interest rates and economic impacts to compensate for falling income. On the contrary, if the investment is long term, then the investor can choose from less volatile instruments, but with ability to adjust to longer periods.
The investor's risk profile: If the investor is very conservative perhaps the tools necessary to fight inflation in the short term are not the most appropriate (and therefore should not invest short term), whereas if the investor is more risky, then it makes all the sense in the world to invest in the short term inflationary environments.
The ability of the investor's financial support: understanding this as the availability of sufficient surplus to ensure that the investor does not decapitalize product of their investment, this can be seen as the borrowing power of the investor or their degree of financial freedom, allowing you to take invest short or long term, only waiting for a profit, without seeing affected the cash flow necessary to meet minimum Wish your needs.
These elements are key, as they identify which instruments should or can be used as a general rule we can say that if you are risk averse, do not invest in inflation in the short term, the same applies if you have little financial freedom or financial support capability.
On the contrary if you are more risky, try to combine several types of instruments rather than concentrate everything in a single industry or company.
The next installment will discuss some investment instruments that may be useful in times of inflation.
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